Singyes Solar (00750.HK/750 HK)

Singyes Solar (00750.HK/750 HK) Margin decline not a concern for earnings growth HK$12.64 Outperform Maintained 1 Huei-chen Flannery 2 852.2878.4270 3 hueichen.flannery@kgi.com Company update Estimate downgrade 1 Jerry Weng (Coordinator) 2 86.21.6125.8671 PV orders pipeline ensures high BIPV revenue growth in 2014F; positive to blended gross margin despite margin slide from Golden Sun project level Sale agreement with United PV (686 HK) cancelled; no further BOT projects considered in our forecast, but investment income remains a key earnings spotlight 2014F EPS is HK$1.25; we raise 2014F PE from 8x to 10x on profitability improvement outlook in coming years; we add 20% premium on target valuation of HK$12.5 given forecast model is exclusive of BOT income; we raise our 12M target price from HK$11.2 to HK$15, for upside of 18.7%; maintain Outperform Projects pipeline to maintain high BIPV revenue growth in 2014F; good for margin despite decline from Golden Sun level In January, Singyes announced 320MW of PV EPC projects on hand, of which 60% are distributed PV power projects and 40% are terrestrial station projects. This lays the foundation for continued high growth in 2014. Singyes has also acquired a 1.1GW power station project in Minqin, Gansu Province, and a distributed PV project in Zhuhai City (yet to be validated as orders on hand). At the analyst meeting, management said the Minqin project will pipeline at least 300MW in 2014 in either EPC or BOT mode depending on cashflow. We thus maintain our BIPV project shipments forecast of at least 600MW in 2014, and target of 800MW in 2015. Considering distributed PV EPC projects carry lower gross margin, below the Golden Sun level, and that terrestrial station projects have gross margin in the teens, we forecast Singyes 2014 BIPV gross margin will fall 3.8ppts to 25.7%, based on expectations of distributed PV projects of 29% and terrestrial station projects of 18%. Sale agreement with United PV (686 HK) cancelled; no further BOT projects considered in our forecast, but investment income remains a key earnings spotlight The agreement to discuss the sale was made in August 2013. It was cancelled due to numerous conditions precedent of the Proposed Transaction. As a result, our model is impacted by Rmb200mn in other income. The firm states in the annual report that it looks to explore other collaboration opportunities to ensure BOT project sales progress. Singyes sold 15MW of projects in Guangdong in 2013, for a hefty gain of Rmb53.6mn (Rmb34mn sponsored by Golden Sun Program), a token of real earnings contribution by BOT projects. From 2014, Singyes will develop BOT-mode projects of 200-300MW or more. The company has self-developed solar projects on-hand of 180MW (100MW with Gold Sun Program). Given the fragmented nature of distributed PV projects, we believe Singyes will plan to shift its focus to BOT within the next couple years. For example, the Minqin terrestrial station is convenient for sell-through, as is the 500MW Zhuhai project (150MW in phase 1 and 350MW in phase 2), given its concentration in one city, making management less complex. Even though we have not incorporated BOT projects income in our latest forecast, we still reckon investment income is a key watch for earnings upside. 2014F EPS lowered to Rmb1.0 On lower BIPV ASP and gross margin expectations and correction of other income, we have revised down 2014F sales by 5.7% to Rmb6.6bn. For proper cost control results in 2013, we have cut 2014F financing and depreciation costs by a respective 11.7% and 5.4%. Our 2014F net income attributable to holding company is lowered 10.1% to Rmb696mn, for EPS of Rmb1.0. Figure 2: Breakdown of 2013 results & 2014 forecast revisions 2014F 2013 Rmb mn Previous Revision Chg. (%) Sales 1,776 1,983 2,124 7.1 Operating profits 425 464 495 6.7 Net income 333 368 381 3.5 EPS (Rmb) 0.23 0.25 0.26 3.5 Gross margin (%) 29.0 28.1 28.6 0.5 Net margin (%) 18.7 18.6 1 (0.6) estimates Figure 1: Strong demand boosts BIPV sales outlook BIPV sales, Rmb mn 6,000 5,000 4,000 3,000 2,000 1,000 0 2011 2012 2013 2014F 2015F Valuation and Recommendation EPC suppliers continue to run on China s policy-driven PV installation demand. We think Singyes traction in both EPC and BOT markets will help to extend the high earnings growth outlook. We forecast 2014 EPS of HK$1.25. Current valuation is 10.1x 2014 PE. We raise 2014 PE from 8x to 10x on profitability improvement outlook over coming years. We also add a 20% premium to our target PE-derived valuation of HK$12.5 as our forecast model is exclusive of BOT income. We raise our 12M target price from HK$11.2 to HK$15, for upside of 18.7%. Maintain Outperform. Institutional portal: http://research.kgi.com April 3, 2014 1

Year to Sales Gross profits EBIT EBITDA Net profits EPS 31-Dec (Rmb mn) (Rmb mn) (Rmb mn) (Rmb mn) (Rmb mn) (Rmb) 2012A 4,151 988 660 727 491 0.71 2013F 6,600 1,559 998 1,086 696 1.00 2014F 8,100 1,899 1,211 1,331 841 1.22 2015F 9,000 2,138 1,373 1,529 947 1.37 Year to EV/Sales EV/EBIT EV/EBITDA P/E EV/Inv. C. ROAE 31-Dec (x) (x) (x) (x) (x) (%) 2012A 1.5 9.3 8.4 11.7 1.3 22.1 2013F 1.0 6.9 6.3 8.2 1.1 23.8 2014F 1.3 8.6 7.9 6.8 1.4 23.1 2015F 1.1 7.3 6.6 9.8 1.2 21.2 Sector Energy 52-week trading range (HK$) 5.9-13.1 12M target price (HK$/shr) 15.00 Mkt cap-hk$ bn/us$ mn 8.8/1,124 Upside/downside (%) 18.7 Outstanding shares (mn) 694 The percentile of excess return (%) 69 Free floating shares (%) 59 Dividend yield-12/14e (%) 1.1 The Largest Shareholder (%): Strong Eagle 35 Book value/shr-12/14e (Rmb) 4.7 3M avg. daily trading (mn) 5 P/B-12/14E (x) 1.8 Abs. Performance (3,6,12M)(%) 54.5; 51.9; 112.1 Net debt/equity-12/14 (%) 35.9 Rel. Performance (3,6,12M)(%) 59.8; 58.2; 127.1 Institutional portal: http://research.kgi.com April 3, 2014 2

Figure 3: Company overview Singyes Solar is a high-tech firm engaged in solar technology, the building of energy-saving technology and related functional materials R&D and production. It has subsidiaries and branches in China, and elsewhere. Outlets include Zhuhai Singyes Green Building, Zhuhai Singyes Renewable Energy, Zhuhai Singyes Opto-Electrical, Hunan Singyes Solar, and Singyes Engineering (HK), with branches in Los Angeles, Abu Dhabi, Qatar and Nigeria. Figure 7: Singyes Solar s share price chart Share price, HK$ (LHS); relative to HSCEI, percent (RHS) 13.0 180 160 140 11.0 120 100 9.0 80 60 7.0 40 20 5.0 0 Apr-13 Jun-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 Share price Price performance relative to HSCEI Figure 4: Earnings growth outlook secure in 2014F Figure 8: Singyes Solar s 12M forward PE band Sales, Rmb mn (LHS); gross margin, percent (RHS) Share price, HK$ (LHS); PE ratio, x (RHS) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2011 2012 2013 2014F 2015F Sales Gross margin 24.4 24.2 24.0 23.8 23.6 23.4 23.2 23.0 4.0 2.0 0.0 2009 2010 2011 2012 2013 2014 11.2x 9.7x 8.2x 6.7x 5.2x 3.7x 2.2x estimates Figure 5: Sales structure Figure 9: Singyes Solar s 12M forward PB band Sales breakdown, percent Alternative energy materials 34.9 Curtain wall materials 10.5 Others [1.1] 40.4 Curtain wall Share price, HK$ (LHS); PB ratio, x (RHS) 4.0 2.0 2.8x 2.2x 1.8x 1.4x 1.3x 0.8x 0.4x BIPV 0.0 2009 2010 2011 2012 2013 2014 estimates Figure 6: PV module price low PV module price, US$/watt 1.8 1.6 1.4 1.2 1.0 0.8 0.6 Jan-11 May-11 Sep-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Institutional portal: http://research.kgi.com April 3, 2014 3

Balance Sheet Total Assets 4,064 6,301 8,402 10,333 11,831 Current Assets 2,366 3,467 4,028 5,238 6,384 Cash & ST Investments 913 1,241 984 1,569 2,244 Inventories 63 77 92 113 125 Accounts Receivable 1,330 1,919 2,622 3,107 3,452 Others 60 230 330 450 563 Non-current Assets 1,697 2,834 4,374 5,095 5,447 LT Investments 30 29 29 29 29 Net fixed Assets 1,545 2,680 4,215 4,931 5,278 Others 122 125 130 135 140 Total Liabilities 2,219 3,702 5,156 6,309 6,921 Current Liabilities 1,634 2,378 3,186 3,800 4,178 Accounts Payable 515 1,293 2,072 2,548 2,820 ST Borrowings 917 870 860 963 1,068 Others 201 216 254 289 290 Long-term Liabilities 584 1,323 1,971 2,508 2,743 Long-term Debts 289 681 1,291 1,788 1,983 Others 295 642 680 720 760 Shareholders' Equity 1,845 2,599 3,246 4,025 4,909 Common Stock 43 46 46 46 46 Capital Surplus 558 558 558 558 558 Retained Earnings 1,245 1,995 2,641 3,421 4,305 Preferred Stock 0 0 0 0 0 Key Ratios Growth (% YoY) Sales 28.7 34.0 59.0 22.7 11.1 OP 33.4 35.3 51.2 21.3 13.4 EBITDA 39.1 34.1 49.4 22.5 14.9 NP 13.0 49.3 41.8 21.0 12.5 EPS 13.0 49.3 41.8 21.0 12.5 Profitability (%) Gross Margin 24.2 23.8 23.6 23.4 23.8 Operating Margin 15.7 15.9 15.1 14.9 15.3 EBITDA Margin 17.5 17.5 16.5 16.4 17.0 Net Profit Margin 10.6 11.8 10.5 10.4 10.5 ROAA 9.4 9.5 9.5 9.0 8.5 ROAE 19.5 22.1 23.8 23.1 21.2 Stability Gross Debt/Equity (%) 65.4 59.7 66.3 68.3 62.1 Net Debt/Equity (%) 15.9 11.9 35.9 29.4 16.4 Interest Coverage (x) 5.8 6.6 7.4 7.3 7.0 Interest & ST Debt Coverage (x) 0.5 0.8 1.0 1.1 1.1 Cash Flow Interest Coverage (x) 2.2 5.2 5.6 4.9 4.5 Cash Flow/Interest & ST Debt (x) 0.2 0.6 0.8 0.7 0.7 Current Ratio (x) 1.4 1.5 1.3 1.4 1.5 Quick Ratio (x) 1.4 1.4 1.2 1.3 1.5 Net Debt (Rmb mn) 301 302 738 1,174 994 Per Share Data (Rmb) EPS 0.47 0.71 1.00 1.22 1.37 CFPS 0.55 0.81 1.13 1.39 0.00 BVPS 2.67 3.76 4.69 5.82 7.09 SPS 4.48 0 9.54 11.70 13.00 EBITDA/Share 0.70 0.95 1.44 1.75 1.98 DPS 0.05 0.07 0.09 0.09 0.09 Activity Asset Turnover (x) 0.9 0.8 0.9 0.9 0.8 Days Receivables 156.8 168.8 145.0 140.0 140.0 Days Inventory 7.5 6.7 5.1 5.1 5.1 Days Payable 60.7 113.7 114.6 114.8 114.4 Cash Cycle 103.5 61.8 35.5 30.2 30.7 Profit & Loss Sales 3,098 4,151 6,600 8,100 9,000 Cost of Goods Sold 2,348 3,162 5,041 6,201 6,863 Gross Profit 749 988 1,559 1,899 2,138 Operating Expenses 261 328 561 689 765 Operating Profit 488 660 998 1,211 1,373 Net Interest Income (85) (111) (139) (172) (203) Interest Income 4 0 0 0 0 Interest Expense 89 111 139 172 203 Net Investment Income/(Loss) 0 0 0 0 0 Net other Non-op. Income/(Loss) 18 77 33 41 45 Pretax Income 422 627 892 1,079 1,214 Income Taxes 93 136 196 237 267 Net Extraordinaries 2 (0) (0) (1) (1) Net Profit After Extraordinaries 329 491 696 841 947 EBITDA 542 727 1,086 1,331 1,529 EPS (Rmb) 0.47 0.71 1.00 1.22 1.37 Cash Flow Operating Cash Flow 197 578 782 848 906 Net Profit 329 491 696 841 947 Depreciation & Amortization 54 67 88 120 156 Change in Working Capital (187) 20 (2) (114) (197) Others 0 0 0 0 0 Investment Cash Flow (311) (1,204) (1,628) (841) (508) Net CAPEX (336) (1,199) (1,620) (833) (500) Change in LT Investment (0) 1 0 0 0 Change in Other Assets 24 (5) (8) (8) (8) Free Cash Flow (115) (626) (846) 7 398 Financing Cash Flow 658 954 589 578 278 Change in Share Capital (8) 263 (49) (62) (62) Net Change in Debt 527 344 600 600 300 Change in Other LT Liab. 138 347 38 40 40 Net Cash Flow 543 328 (257) 584 676 Rates of Return on Invested Capital Year to COGS Dep./Amortization SGA Exp. Operating 1- + + = 31-Dec Revenue Revenue Revenue Margin 2012A 74.1% 1.8% 8.4% 15.7% 2013A 74.6% 1.6% 7.9% 15.9% 2014F 75.0% 1.3% 8.5% 15.1% 2015F 75.1% 1.5% 8.5% 14.9% 2016F 74.5% 1.7% 8.5% 15.3% Operating Year to Working Net PPE Other Assets Capital 1/ + + = capital 31-Dec Revenue Revenue Revenue Turnover 2012A 0.3 0.5 0.0 1.2 2013A 0.2 0.6 0.0 1.1 2014F 0.2 0.6 0.0 1.2 2015F 0.2 0.6 0.0 1.3 2016F 0.2 0.6 0.0 1.3 Year to Operating Capital Cash 1 - Tax After-tax Return x x = 31-Dec Margin Turnover Rate on Inv. Capital 2012A 15.2% 1.2 77.8% 13.7% 2013A 15.7% 1.2 78.3% 14.9% 2014F 15.9% 1.1 7% 13.8% 2015F 15.1% 1.2 7% 14.4% 2016F 14.9% 1.3 7% 15.0% Institutional portal: http://research.kgi.com April 3, 2014 4

Singyes Solar Three-year recommendation & target price history Share price, HK$ 1 4.0 2.0 Jan-11 Apr-11 Jul-11 Oct-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Mar-14 Share price Target price lowered Target price raised Singyes Solar Investment ratings & target prices for the past three years Date Share price Rating Target price (HK$) (HK$) Previous Revised Previous Revised 3-Apr-14 12.64 Outperform Outperform 11.20 15.00 20-Jan-14 8.78 Outperform Outperform 10.20 11.20 2-Sep-13 0 Outperform Outperform 10.20 10.20 16-May-13 8.40 Outperform Outperform 7.65 10.20 26-Mar-13 6.36 Outperform Outperform 8.40 7.65 13-Mar-13 7.22 Outperform Outperform 10.14 8.40 15-Jan-13 7.70 Outperform Outperform 7.80 10.14 13-Dec-12 5.99 Outperform Outperform 5.54 7.80 25-Oct-12 4.27 Outperform Outperform 5.05 5.54 27-Sep-12 3.72 Outperform Outperform 3.90 5.05 30-Aug-12 2.83 Outperform Outperform 5.15 3.90 4-May-12 3.98 Neutral Outperform 4.30 5.15 23-Apr-12 3.78 Outperform Neutral 5.52 4.30 16-Feb-12 4.45 Outperform Outperform 4.62 5.52 10-Nov-11 3.85 Outperform Outperform 7.40 4.62 22-Jun-11 6.71 Initial coverage Outperform N.A. 7.40 Institutional portal: http://research.kgi.com April 3, 2014 5

KGI Locations China Taiwan Shanghai Room 2703B-2704, Tower A, Shanghai Dawning Centre,500 Hongbaoshi Road Shanghai, PRC 201103 Shenzhen Room 24D1, 24/F, A Unit, Zhen Ye Building, 2014 Bao annan Road, Shenzhen PRC 518008 Taipei 700 Mingshui Road, Taipei, Taiwan Telephone 886.2.2181.8888 Facsimile 886.2.8501.1691 Hong Kong 41/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong Telephone 852.2878.6888 Facsimile 852.2878.6800 Thailand Bangkok 8th - 11th floors, Asia Centre Building 173 South Sathorn Road, Bangkok 10120, Thailand Telephone 66.2658.8888 Facsimile 66.2658.8014 KGI's Ratings Rating Definition Outperform (OP) The stock's excess return over the next twelve months is ranked in the top 40% of KGI's coverage universe in the related market (e.g. Taiwan). Neutral (N) The stock's excess return over the next twelve months is ranked in the range between the top 40% and the bottom 40% of KGI's coverage universe in the related market (e.g. Taiwan). Underperform (U) The stock's excess return over the next twelve months is ranked in the bottom 40% of KGI's coverage universe in the related market (e.g. Taiwan). Not Rated (NR) The stock is not rated by KGI. Restricted (R) KGI policy and/or applicable law regulations preclude certain types of communications, including an investment recommendation, during the course of KGI's engagement in an investment banking transaction and in certain other circumstances. Excess return = 12M target price/current price-1 Note When an analyst publishes a new report on a covered stock, we rank the stock's excess return with those of other stocks in KGI's coverage universe in the related market. We will assign a rating based on its ranking. If an analyst does not publish a new report on a covered stock, its rating will not be changed automatically. Disclaimer This information has been compiled from sources we believe to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. It is not an offer to sell or solicitation of an offer to buy any securities. KGI Asia Limited and its affiliates and their officers and employees may or may not have a position in or with respect to the securities mentioned herein. KGI Asia Limited (or one of its affiliates) may from time to time perform investment banking or other services or solicit investment banking or other business for any company mentioned in this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. Institutional portal: http://research.kgi.com April 3, 2014 6